What Is Increasing Term Life Insurance?

Increasing term life insurance is a type of life insurance that lasts for a specific number of years, and the death benefit increases over time. This increase can help offset both inflation and rising costs.

An increasing term policy differs from adding a rider to an existing life insurance policy. A rider will add additional coverage to a current policy, whereas an increasing term policy is a standalone policy with set death benefit increases built into the existing structure.

The Basics of Term Life Insurance

There are two major types of life insurance: term and permanent. A permanent life policy is made to last the insured’s entire life at a locked-in price. Many permanent policies also offer a cash value — the amount the policy is worth if it is canceled or cashed in.

Term policies, on the other hand, are made to last a set number of years, usually 10, 20, or 30. They do not offer a cash value but are generally much more affordable than a permanent policy. Once the end of the term is reached, the term policy may lapse or renew at a much higher cost.

With an increasing term life policy, the death benefit increases over time. This gradual increase may be an attractive feature to anyone worried about inflation or rising costs in the future.

How Does an Increasing Term Life Insurance Policy Work?

Like all life insurance policies, there are many factors to consider when weighing an increasing term policy. It is essential to consider the eligibility requirements, how the policy will increase, and the cost of the policy.

Eligibility

The life insurance company will want to ensure you are a good candidate for their product. To do this, they will look at many factors to determine your eligibility. While some eligibility requirements differ from company to company, most insurance companies will look at the following factors:

Health: This includes your overall health, height and weight, and family history.
Occupation: The more hazardous your career, the more of a risk you are to insure.
Hobbies: Dangerous hobbies, such as skydiving, racing, and boxing, may lead to ineligibility.
Tobacco usage: Using tobacco can drastically increase your premiums.
Alcohol and drug usage: Using alcohol and drugs can increase your premiums or make you ineligible for life insurance.
Criminal record: A criminal record can make you ineligible for some life insurance companies.

Percentage-Based vs. Flat Rate Increase

There are two ways that the death benefit can increase in an increasing term life policy: percentage-based or a flat rate increase.

Percentage-based increase: This means that the policy’s death benefit will increase a certain percentage of the death benefit every set number of years. For example, if the policy is set to grow 10% every five years and the death benefits start at $100,000, this first increase would be for $10,000.
Flat rate increase: In this scenario, the death amount will increase by a set amount of money instead of a percentage. For example, the policy may increase by $10,000 every five years.

Many insurance companies offer both options, but some companies may only offer one type of increasing term policy. If you’re interested in this type of life insurance, be sure to speak with an agent about your options.

How Much Does an Increasing Term Life Insurance Policy Cost?

The cost is an important factor to consider when choosing a life insurance policy. While permanent policies are more expensive than term policies, an increasing term policy is usually more costly than a traditional term policy.

Many of the factors that affect eligibility can also affect the cost. For example, someone in poor health may be approved for the policy but at a higher rate. Other factors — such as age, gender, the death benefit, and policy term — can affect the cost.

The higher the death benefit and longer the term, the higher the policy cost. For example, a 20-year term policy for $250,000 will cost more than a 10-year term policy with a death benefit of $100,000.

Should You Get Increasing Term Life Insurance?

While an increasing term life insurance policy may be a good option for some, there are factors to consider to determine if it is the best fit for you.

Consider If…

While there are many types of term policies, you may consider purchasing an increasing term life insurance policy if you meet the following criteria:

A temporary policy meets your needs.
Having a more affordable policy is better for your budget.
The increasing death benefit helps you feel more comfortable against inflation and rising costs.
You are not concerned with the cash value aspect of a life insurance policy.

If these factors are not what you have in mind, an increasing term life policy may not be the best fit for you.

Advantage

There are many advantages to an increasing term life policy. Consider the following advantages:

Lower cost than permanent policies
Built-in increases in the death benefit
Price is known for the term and increases
Provides a death benefit should you pass away
There is no need for a new medical exam when the death benefit increases

Drawbacks

While this type of policy has many advantages, there are also some drawbacks. Consider the following disadvantages:

More expensive than a traditional term policy
Premium may increase over time when the death benefit increases
The policy may lapse after the term runs out or increase at a much higher cost
No cash value

How to Get an Increasing Term Life Insurance Policy

If you decide that an increasing term life insurance policy is the best fit for you, you will need to take the following steps to secure your policy:

Select an insurance company. Not all insurance companies offer this type of policy. You can look online for a provider. Review insurance companies to ensure they are a reputable choice.
Contact the insurance company for a quote. While it may be possible to get a quote online, it may be best to contact the insurance company by phone or in person to ensure you are getting a quote on the correct type of policy.
Apply for the policy. You will need to complete an application with the insurance company that includes your personal information, health history, medical history, and lifestyle.
Complete the underwriting process. Once you have applied for the policy, the insurance company will begin the underwriting process. This can include a health questionnaire, medical exam, and medical records.
Review and accept the policy. Once the underwriting process is completed, you will be contacted by the insurance company with the final decision. The policy rate may change. It is important to review the policy carefully.
Pay for the policy. Once you have accepted the policy, you will need to make regular premium payments to ensure the policy stays in force.

Additional Riders to Add to Increasing Term Life Insurance

Just like with other life insurance policies, you can add a rider to your increasing term life insurance policy. A rider is an add-on that can add additional coverage or options to a life insurance policy. There are many common riders to consider, including the following:

Waiver of premium: This rider can waive your premium if you become disabled.
Accelerated death benefit: This rider allows you to access a certain percentage of your death benefit while you are alive if you become critically or chronically ill.
Conversion rider: This rider will allow you to convert your term policy to a permanent one without undergoing new medical underwriting.
Return of premium rider: This rider provides for your premiums to be returned to you should your term end and you are still alive.
Long term care rider: This type of rider will enable you to access a portion of the death benefit if you need long-term care, such as a nursing home.

All in All

When purchasing life insurance, there are many types of policies to consider. An increasing term life insurance policy offers a term policy with a locked-in rate for a set amount of years, but it also provides an increasing death benefit to help offset higher prices in the future.

This type of policy is best for someone on a budget and not concerned with the cash value aspect of life insurance. You may also consider adding a rider to increase your protection. Consider all aspects of this type of policy to see if it is the best fit for you.

Frequently Asked Questions

Yes. Because of the added protection with the increasing death benefit, this type of policy is more costly than a standard term policy. It is also important to note that the premium on an increasing term policy may increase over time as the death benefit increases.

Yes. When you purchase the policy, you will be given an illustration. That illustration will show all the death benefits and price increases for the lifetime of the term. It is essential to review the illustration carefully to prepare for price increases.

You may be able to change from an increasing term policy to a standard term policy. However, this would be considered purchasing a new policy, and you may need new underwriting. The new policy’s price and term may also differ from the current policy.

The premium increase will be directly affected by the increase in coverage. The larger the increase in the death benefit, the more significant the increase in the premium. For example, a policy that increases $25,000 every five years will have a larger premium increase than a policy that only increases $10,000 every five years.

The death benefit payout will follow the increases indicated in the illustration and policy paperwork. The death benefit will increase on the policy anniversary date. If the insured passes away one day before the growth takes effect, the payout will not reflect the increase.

With most insurance policies, you must continue the increases on an increasing term policy. Should you want to stop the growth, consider canceling your current policy and a level term policy.

What Is Increasing Term Life Insurance?